ITO 25(1)(4), MUMBAI vs. VINAYAK A RAKVI (HUF), MUMBAI

Assessee by: Shri Vishwas V. Mehendale Department by: Shri V. Vidhyadhar, DR सुनवाईकीतारीख / Date of Hearing:27.09.2017 घोषणाकीतारीख /Date of Pronouncement:. 09.11. 2017 आदेश / O R D E R

PER AMARJIT SINGH, JM:

On the facts and circumstances of the case and in law, the Ld. CIT(A)-37, Mumbai has erred in deleting the addition of Rs.2,56,91,109/- made by the AO for Long Term Capital Gain. On the facts and circumstances of the case and in law, the Ld. CIT(A)-37, Mumbai has erred by directing the AO to assess the A.Y. 2010-11 Capital Gain for the year 2011-12 without considering the fact that the original transactions are already taken place in the F.Y. 2009- 10 and the assessee has given the consent to the first purchaser to sell the property by a conveyance deed since there was some due from the first purchaser and the assessee has admitted that they received Rs. 10 Lakhs advance and the party died intestate, and the money has not paid back for want of legal heirs. On the facts and circumstances of the case and in law, the Ld. CIT(A)-37, Mumbai has erred in directing the AO to treat the taxable Capital Gain as exempted u/s 54 ignoring the fact that full consideration should be utilized within the prescribed period. The appellant prays that the order of Ld. CIT(A) on the above ground be set aside and that of the AO be restored. The appellant craves leave to amend or to alter any ground or add a new ground which may be necessary.”

3. The brief facts of the case are that the assessee did not filed his return of income. A tax evasion petition was filed by Mr. Anmol Ganpat Rackvi (nephew of the assessee) residing at 303, Garden view Apartments, Baban Vaidya Road, Tam Talav, Vasai (W), 401 201, Mumbai. The jurisdiction of the assessee falls within the income Tax Officer and the PAN was also with this office. After receipt of the TEP, notice u/s 142(1) of the Act dated 20.03.2012 was sent to the assessee for filing the return of income for the A.Y. 2010-11. Thereafter the notice u/s 143(2) was also issued but no compliance was made from the assessee. A second reminder letter dated 26.07.2012 was also issued. The assessee filed the reply dated 03.08.2012 wherein adjournment was requested for 10 to 15 days. Thereafter, the assessee did not appear. Show cause notice u/s 271(1)(b) of the Act dated 31.08.2012 was issued to the assessee of his appearance on 17.09.2012. After issuance of number of reminder ITA. No.3561/M/2015 A.Y. 2010-11 M/s. D. S. Desai &Co. Charted Accountants appeared on behalf of the assessee on 23.10.2012 and requested for a time for filing the return. Thereafter, no one appeared. Further notice issued to the assessee on 12.11.2012. M/s. D.S. Desai & Co. Charted Accountants again appeared on 05.11.2012 with return for filing the return of income. Thereafter, no one appeared, therefore, the assessment was completed without the appearance of the assessee. The assessee was the part of the Rackvi family and was owning certain plots at Mira Road/ Bhayandar District. Thane. The Memorandum of understanding (MOU) was executed on 23.06.2008 between various persons including assessee wherein 19 plots were sold to Mr. Cheravath Prakash residing at S-7 Sai Geeta Darshan, New Golden Nest Road, Mora Road (E) 401 105 and Mr. Moolchand Fatehlal Sharma residing at S-7, Sai Geeta Darshan, New golden Nest Road, Mira Road (E) 401 105. As per the said MOU, Mr. Cheravath Prakash and Mr. Moolchand Fatehlal Charma were to pay substantial amount running to the crores to the vendors. Thereafter, Mr.Cheravath Prakash and Mr Moolchandra Fatehlal Sharma got separated and Mr. Cheravath Prakash helped the Rackvi family members to execute the sale deeds in respect of 9 plots whose detailed are hereby mentioned below.:- A.Y. 2010-11 Sr. No. Survey No. Old Survey No.Hissa No.Area in S Consideration total for 4/5h Share As per agreement/25% share of Assessee Registered 1 398 60 21 780 23,00,000 5,75,000 On 21.12.209 2,00,000 To. C. Prakash 25,00,000 Total Registered on 271 82 3 1520 14,80,000 3,70,000 21.12.2009 2 14,80,000 Total 3 272 84 1 1870 15,00,000 3,75,000 4 271 82 13 100 4,00,000 To C. Prakash Registered on 21.12.2009 19,00,000 Total 5 254 41 9 2530 1,00,00,000 25,00,000 6 252 43 6 810 48,00,000 To C. Prakash Registered on 21.12.2009 1,48,00,000 Total 7 459 133 4 4250 1,50,00,000 37,50,000 Registered on 40,00,000 To C. Prakash 15.02.2010 1,90,00,000 Total 8 268 53 1 6360 1,46,00,000 73,00,000 9 266 67 7 1640 1,46,00,000 Total Registered on 10.03.2010 Total 1,48,70,000 ------------------------------------------------------------------------------------ 4. The assessee was having the 1/5th share in the mentioned plots. According, to the share of the assessee, the LTCG was assessed to the tune of Rs.2.56.91.109/-. The total income of the assessee was assessed to the Rs.2,64,41,110/- and accordingly taxed. Feeling aggrieved the assessee filed an appeal before the CIT(A) who partly allowed the claim of the assessee, therefore, the revenue has filed the present appeal before us.

ITA. No.3561/M/2015 A.Y. 2010-11

“I have considered the AO’s observation in the remand report in the back drop of the submissions made by the appellant and the facts emanating from the impugned order. The properties with reference to whom the appellant entered into agreements for sale during the year under consideration were as follows:

Sr. No. Date of Agreement S. Nos Name of Amount as per Amount received Old & purchaser agreement during the year New 1 21.12.2009 398- Cliff Rs.23,00,000/- Rs.5,75,000/- Developers 60/21 Are 780 Sq. Mtr Rs.14,80,000/- 2 21.12.2009 271- Abhay Rs.3,70,000/- 83/3 ostwal 3 21.12.2009 271- Murtaza H. Rs.15,00,000/- Rs.3,75,000/- Shaikh 82/13 272- 84/1 4 08.082009 373- Subodh Rs.90,00,000/- Rs.9,37,500/- Chowdhary 77/3 5 21.12.2009 254- N.M. Rs.100,00,000/- Rs.25,00,000/- Developers 41/9 (agreement 252- cancelled)

ITA. No.3561/M/2015 A.Y. 2010-11 43/6 6 15.02.2010 459- N.M Rs.150,00,000/- Rs.37,50,000/- 133/4 Developers (agreement cancelled 7 10.03.2010 268- Enrich Rs.146,00,000/- Rs.36,50,000/- Developers 53/1 (Agreement 266- cancelled 67/1 In appeal, it has been submitted that the said lands were ancestral property jointly owned by 5 HUFs of which 4 including the appellant acted together to attempt to sell their share of the above lands. It was stated that subsequent to the agreements, the purchasers were unable to make complete payments because of which legal action was taken and 3 agreements cancelled as stipulated therein. Thereafter, the appellant HUF acting independently entered into fresh agreements from their share in the 3 properties where agreements were cancelled i.e at Sr. No. 5,6,7. The appellant has also submitted that part payments received with reference to the original agreements during the year under consideration were later adjusted in the new agreements executed in the subsequent financial years. In light of this, it is the contention of the appellant that receipts on account of such part payments are to be taken into consideration as income of the appellant only in the F.Y when the new agreements were executed and accordingly, addition of Rs.2,02,29,783/- should be deleted from the year under consideration. On perusal of the initial agreements signed with reference to the above three properties, it is seen that as per clause 2 of the agreements there was a clear stipulation that in case of dishonour of cheques issued by the purchasers, the agreements would stand automatically cancelled and that the purchaser would not have any rights in respect of the said property in any manner whatsoever. Subsequently fresh agreements were signed for properties at S.No. 252-43/6 and 254-41/9; S. No..459-133/4 and S.No. 266-67/7 and 268-53/1 - and these were registered in F.Y. 2011-12 i.e. A.Y. 2012-13. From the family tree of the Rakvi) family, as furnished by the appellant during these proceedings it is seen that the original agreements for the sale of these properties were signed by the 4 HUFs and their representatives as the said A.Y. 2010-11 transactions were being entered into jointly. As against this, for the 3 properties wherein the original agreements were cancelled, the new agreements are executed only by the appellant HUE and its members. Accordingly, the apparent discrepancy noted by the .40 in terms of the names of the signatories of the agreements stands explained. 5.7 In the backdrop of the above facts, the moot question to be decided in the Instant case Is whether the capital gains for all 7 lands are to be assessed in the year under consideration or not. 5.8 In the decision rendered by the Apex Court in the case of Suraj Lamp & Industries (P.) Ltd. v State of Haryana (14 taxmann .com 103)(SC), the Hon'ble Supreme Court examined the Issues related to the transfer of immovable property and held that an agreement for sale whether with possession or without possession, is not a conveyance and that Section 54 of the T.P. Act enacts that an agreement of sale does not create any interest or charge on its subject-matter. 5.9 Section 53A of the TP Act defines 'part performance' as follows: Part Performance. - Where any person contracts to transfer for consideration any Immoveable property by writing signed by him or on his behalf from which the terms necessary to constitute the transfer can be ascertained with reasonable certainty, and the transfer has, in part performance of the contract, taken possession of the property or any part thereof, or the transferee, being already in possession, continues In possession in part performance of the contract and has done some act in furtherance of the contract, and the transferee has performed or is willing to perform his part of the contract Then, notwithstanding that where there is an instrument of transfer, that the transfer has not been completed in the manner prescribed therefor by the law for The time being in forte, the transferor or any peon claiming under him shall be Mitterrand from among against the M usable and persons claiming under him any right in respect of the property of which the transferee has taken or continued in possession other than a right expressly provided by the terms of the contract: Provided that nothing in this section shall affect the rights of a transferee for consideration who has no notice of the contract or of the part performance thereof 5.10 In the Instant case the original agreements signed between the appellant and other I-HUFs and the proposed purchasers clearly stipulated that in case of disruption/non-fulfilment of payment, the A.Y. 2010-11 agreements would stand vitiated and that the purchaser would have no right to the property in question. In order to construe the transaction as a transfer, the purchaser should have had de jure authority of possession, enjoyment and even alienation over such property. In other words, the basic requirement of such transfer, that there should be an agreement in writing {eve If not registered) between the parties) and following such agreement the transferee should have taken possession over the property, most be present. Thus, what is crucial in such case is the transfer of possession over the transferred property to the transferee. This has not been demonstrated In the Instant case w.r.t the lands at S. Nos. 252-43/6 and 254-41/9; S.Nos. 459-133-4 and S.Nos. No. 268-53 & 265-67(i) as well as for property at Sr. No, 375-77/3 where the agreement was signed with the Late Subodh Choudhary. Further the fresh agreements executed between the appellant and the new purchasers Include the earlier proposed purchasers as confirming parties. The agreements also clearly mention that the consideration as per the flew agreement will include the earlier amount received from the confirming party as per the initial agreement, thus turning the amount received earlier into an advance' adjusted against the final consideration received in pursuance of the subsequent agreement In such a situation, when there is nothing to show that the possession of properties in question was parted with by the appellant -HUF, the transfer cannot be stated to have occurred even in terms of part- performance. Accordingly, capital gains from the transfer of lands at S.Nos. 252-43/6 and 254-41/9; S.Nos. 459-133-4 and S Nos. No. 268-53 & 266-67(1) will be taxable only in the financial year when the fresh agreements were executed. As the fresh agreements are registered in May 2011 i.e. in F.Y. 2011-12, the relevant A.Y would therefore be A.Y. 2012.13. 5.11 As regards the plots of land bearing survey nos. 398-60/21; 271-83/3 and 271-82/13 with 272 -8411 transferred to Cliff Developers, Abhay Ostwal and Murtaza Shaikh respectively, the agreements for the said properties have been duly executed and payment received by the appellant in the F.Y. 2009-10, the capital gains on the sale of these lands will be assessable in the year under consideration. Subject to the decision on the allow ability of claim of exemption u/s.54 which is adjudicated upon subsequently. 5.12 In the case of property situated at survey no. 373-71/3, the appellant has submitted copy of agreement dated 08/08/2009 whereby the said plot was agreed to be sold to Late Sbrl Subodh A.Y. 2010-11 Chowdhary for a total amount of Rs. 90,00,000/- of which the share of the appellant HUF was Rs. 22,50,000/-. It was further submitted that Shri Subodh Chowdhary expired intestate after execution of the agreement and that till then the appellant had received only Rs. 931,500/-. The details of payments received by the appellant prior and post death of Shrl Chodhary are given as follows:- (1) Detail of amounts received from (a) Late Mr. Subodh Choudhary and after his death amount received from (b) legal heirs of Late Mr. Subodh Choudhary. 16.05.2009 Rs.1,00,000.00 26.05.2009 Rs.4,00,000.00 01.12.2009 Rs.4,37,500.00 ------------------- 10.04.2010 Rs.4,37,500.00 30.08.2010 Rs.4,37,500.00 02.11.2010 Rs.4,37,500.00 ------------------- Rs.13,12,500.00 --------------------- The appellant has therefore emphasized that the major part of the sale consideration was received in F.Y. 2010-11 and has stated that the possession of the land in question was handed over to the heirs of Late Shri Choudhary only after receipt of full consideration. In view of these facts the appellant has submitted that the capital gains arising from this transactions are assessable only in A.Y. 2011-12. On perusal of the impugned assessment order and remand report I find that the AO has not brought on record to show that either the entire sale consideration had been received by the appellant HUE in this year or that possession of the land in question was handed over in this year to the legal heirs of the Late Shri Choudhary. Accordingly, capital gains from the sale of Sr. No. 373-7113 cannot be held as taxable in the year under consideration and the AO is directed to take necessary action to bring the same to tax (if not so offered by the appellant) in A.V. 2011-12. 5.13 The second aspect in the present appear is regarding the allowability of exemption of capital gain claimed by the appellant A.Y. 2010-11 U/S 54. In appeal, the appellant submitted that the amount of Rs. 88,00000/- was deposited in the Capital Gains Account Scheme on 29/03/2011 and therefore it was eligible for exemption u/s 54. No clear finding in this regard was given by the AO in the remand report even though the appellant had enclosed with the additional evidence, copy of Central Bank account statement of account no. 3116678893 (erroneously mentioned as 2632161(which is the telephone number of the branch) in the submissions dated 0510312014) wherein an amount of Rs. 88,00,000/- was clearly reflected. Along with the bank statement, the appellant had also furnished a copy of Agreement for Sale between Mrs. Zaheda Sultana (Transferor) and appellant HUF in respect of Flat No. 301, Building No. A-2, 3 Floor Palm Apartments CHS, Versova, Andheri executed on 25/04/2011. - 5.14 On perusal of the facts of the case it is seen that the plots of land at Sr. nos. 1 to 3 of the table in Para 5.3 were sold in the month of August 2009 (on 08/08/09 and 21/12/2009). Accordingly, as per the provisions of section 54, the appellant should have purchased (within 1 year before or 2 years after) or constructed (within 3 years after) a new asset being a residential house or in the case of not having appropriated the capital gain for purchase of new property it should have mandatorily invested the said amount in the Capital Gains Account Scheme before the due date for filing of return u/s 139. It is the submission of the appellant that investment of an amount of Rs.88,00,000/- was made in the capital gains accounts scheme on 29.03.2011 and that therefore the exemption should be allowed. 5.15. As regards the issue of whether the time available to an assessee for deposit of the capital gains in the notified scheme is till the due date as per section 139(1) or 139(4), the Hon’ble R&H High Court, in the decision rendered in the case of CIT V. Smt. Jagriti Agarwal 339 ITR 610, held that the due date for filing of return must be read taking cognizance of the time provided by section 139(4) and the claim of exemption u/s 54 could not be disallowed on the basis that the deposit had not been made within the time allowed u/s. 139(1). The relevant part of the decision is as under: 2. The revenue has claimed the following substantial question of law, as arisen from the order of the Tribunal: “Whether in the facts and circumstances of the case and in law the ITAT was justified in allowing the benefit of exemption u/s 54 of the A.Y. 2010-11 I.T. Act by wrongly interpreting Section 54 of the I.T. Act in which the due date for furnishing the return of income is mentioned as per Section 139(1) and not as per Section 139(4) of the Act.? 3. The assessee sold her house property for Rs.45 lacs and claimed deduction u/s 54 of the I.T. Act. The assessee was served with a notice u/s 142(1) of the Act, as to why the amount deducted be not added to her income as long term capital gain, as the assessee failed to deposit the amount in capital gain account scheme and also failed to purchase house property before the due date of filing the return of income( emphasis supplied. The assessee contested the claim of the revenue and asserted that the is not liable to deposit the amount in capital gain deposit scheme and that the due date of filing the return of income tax is not as specified in section 139(1) but as specified in section 139(4) of the Act. The AO declined the claim of the assessee and returned finding that the assessee has concealed her particulars of income and initiated proceedings for penalty as well.

6. On appraisal of the above finding, we noticed that the appellant entered into the agreement for sale during the year under consideration with seven parties whose names are hereby mentioned below:-

Sr. No. Date of Agreement S. Nos Old & Name of Amount as per Amount received New purchaser agreement during the year 1 21.12.2009 398-60/21 Are Cliff Developers Rs.23,00,000/- Rs.5,75,000/- 780 Sq. Mtr 2 21.12.2009 271-83/3 Abhay ostwal Rs.14,80,000/- Rs.3,70,000/- 3 21.12.2009 271-82/13 Murtaza H. Rs.15,00,000/- Rs.3,75,000/- 272-84/1 Shaikh 4 08.082009 373-77/3 Subodh Rs.90,00,000/- Rs.9,37,500/- Chowdhary 5 21.12.2009 254-41/9 N.M. Developers Rs.100,00,000/- Rs.25,00,000/- 252-43/6 (agreement cancelled) 6 15.02.2010 459-133/4 N.M Developers Rs.150,00,000/- Rs.37,50,000/- (agreement cancelled 7 10.03.2010 268-53/1 Enrich Rs.146,00,000/- Rs.36,50,000/- 266-67/1 Developers (Agreement cancelled